The above question is one which frequently arises when a claim has been made by a freeholder to the LVT to determine the reasonableness of service charges.

Obviously it is always open to the tenant to request that the LVT in determining the application will exercise it’s discretion and make an order under Section 20c Landlord and Tenant Act 1985. If such an order is made the LVT can order that no costs will be added to the service charge accounts or limit the amount/proportion that may be recovered. If the freeholder is generally successful in their application often the LVT will not make such an order and so then the costs may be recoverable.

As various articles have said it is then important to look at the terms of the lease. Unless the lease allows recovery the freeholder will not be allowed to recover these costs.

In this case the freeholder had brought proceedings in the LVT to determine the reasonableness of the service charge and subsequently looked to recover the costs. Proceedings were issued in the County Court who determined at first instance that the costs were recoverable under clause 3(12) of the lease which said:

“pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord incidental to the preparation and service of a notice under section 146 of the Law of Property Act 1925 or incurred in or in contemplation of proceedings under section 146 or 147 of the Act…. and to pay all expenses including solicitors’ costs and surveyors’ fees incurred by the landlord of and incidental to the service of all notices and schedules relating to wants of repair of the premises…..”

The District Judges findings were upheld at first instance by the Circuit Judge but the leaseholders appealed to the Court of Appeal. The appeal was dismissed as the Court of Appeal determined that clearly the Landlord had incurred costs in undertaking repairs etc and under section 81 of the Housing Act 1996 an application to the LVT is a necessary pre condition of the forfeiture process.

An interesting decision making clear that the Court will give a broad interpretation to these clauses to allow Landlords to recover costs

Many leases allow the recovery of costs of recovering service charges as a service charge expense themselves. As with all things relating to service charges the starting point is to look at the lease terms. A well drafted service charge provision will allow recovery of such costs even where it is a Leaseholder who applies. Some leases contain provisions which allow costs to be potentially recovered from an offending Leaseholder in total if down to them rather than a general service charge provision but this is unlikely to cover the situation where a Leaseholder challenges the service charge rather than the Freeholder pusuing.

It is therefore a question of understanding the lease. Whilst this may seem unfair on other Leaseholders conversely if the Freeholder incurred costs which they could not recover this could be unfair on them. If a Freeholder has not adequately managed the property and the challenge has been justified the LVT have powers under Section 20C to limit the recoverability of the costs as a service charge expense.

The only real way to stop multiple applications is to ensure that service charges are properly claimed and to try and ensure engagement with the Leaseholders.